Some potential measures to improve welfare & unemployment

As you are probably aware, I have been unemployed for the majority the last 6 months. This has given me, amongst other things, some time to watch the goings on at the party conferences in late September through to early October. As a left-wing christian, I fully support the idea that society should look after it’s more vulnerable members, whether they be children, the elderly, the jobless or the disabled. When I post views such as these on Twitter, I often get responses from trolls (or maybe genuine conservative apologists) who sometimes suggest I ought to come up with a perfect welfare system, fully costed, in 140 characters. So in this post, I plan to explore some ideas of how improvements could be made. I am not, by myself, a full government department which ought to be looking at these things, so any figures I use are reasoned estimates.

My first point to note is that job seekers’ allowance (JSA) is not enough to live on. It covers food costs and, when considered on a daily cost basis, utility bills. But it doesn’t cover all the cost of rent or travel to and from interviews. Also, costs of living vary around the country. So it is nonsensical to even ask for ‘a number’ that would suffice for JSA. I have seen no evidence of any costing behind the £71 per week that it currently is.

Instead, I would propose a reimbursement of living costs. That is, make claiming JSA more akin to claiming expenses from an employer. Lay down rules about what can and can’t be reasonably claimed and reimburse when evidence is presented for those claims. For example, for my rent I could present my lease contract, for my travel I could present train tickets and emails confirming dates and locations of interviews, for food I could present a till receipt from Asda.

The second point is about reducing unemployment. I have been to interviews and lost out to people who are moving from one job to another. All this time they are working, gaining experience and making themselves more attractive to potential employers. So it’s a virtuous circle for some, but a vicious circle for others. The longer I spend unemployed, the worse it looks on my CV and the less attractive I am to employers.

So I would I would propose an incentive to companies to encourage them to employ those who are currently unemployed. How would I do this? A tax break. At present, the expense of hiring someone and paying their salary reduces a company’s profits which lowers their tax bill a bit. i.e. if you hire someone on a salary of £30k and have a £5k recruitment fee, in that year you will get a tax benefit of £35k multiplied by the rate at which that company pays corporation tax (which depends on how big their profits are). I would propose that the amount that is tax deductible by increased if that person has been unemployed, the evidence for which would be a P45 from the Department for Work & Pensions (DWP). So as an example, let’s say the multiplication factor is ‘W’. This would be effective for any recruitment costs and the first year’s salary. After that, no additional tax break could be claimed.

At present, for employing someone at a total cost of £35k, the company has a tax deductible amount of £35k. But if they employ someone who has been unemployed for a month, then their tax deductible amount would be W x £35k. The difference is of course, £(W-1) x 35k. If the company pays corporation tax at 24%, then they get an additional tax benefit of £(W-1) x35k x 24% = £(W-1) x 8.4k.

How would this be funded? It would be self-funding as the newly employed person would no longer be claiming JSA and would be paying income tax and national insurance. Assuming there are no complications in their tax affairs, a person on a salary of £30k would pay roughly £4,379 in income tax and £2,689 in national insurance. There would also be a contribution for the employer’s NIC of £3,107. This make a total contribution back to the treasury of £10,175. So by employing someone, even if they were unproductive, that’s what they would contribute. But if they’re no longer unemployed, they wouldn’t need to claim JSA. A year’s worth of that costs 52 x £71 = £3,692.

So let’s work out what W would be to break even.

(W-1) x 8,400 = 10,175 + 3,692
W – 1 = (13,867/8,400)
W = 2.651

So we could in fact give a tax break to companies by allowing a tax deductible amount that is exactly double the actual cost and the net cost to the treasury would be less than the revenues raised.

Of course, this is one example, with many other variations possible, such is the complexity of life. I’ve done some testing for other W figures based on other salaries and they tend to be about 2.3-2.8.

This is not an incentive to create employment, merely a way to encourage companies to take on those who are currently unemployed. It’s not a panacea, but I think it’s a small improvement on what we have now.

I hope I’ve shown that this is an idea worth pursuing. So those are some of my ideas. What measures do you think would help improve the benefits system and reduce unemployment? Please be constructive.